Major Commercial Real Estate Lender Capmark To File Chapter 11

It's happening. The long-awaited bankruptcy of big-time commercial real estate lender Capmark is just about here.

WSJ: In 2006, a group led by KKR & Co., Goldman Sachs Capital Partners and Five Mile Capital Partners acquired the lender GMAC LLC's commercial-real estate business and renamed it Capmark. As of March 31, the investor group owned about 75% of the company, with GMAC and its employees owning the balance.

The Horsham, Pa., company recently reported a $1.6 billion second-quarter loss and warned it might be forced to seek Chapter 11 bankruptcy protection. KKR has already written down its investment in Capmark to zero.

Capmark recently entered an agreement to sell its North American servicing and mortgage-banking operations to a new company owned by Warren Buffet's Berkshire Hathaway and Leucadia National Corp. for as much as $490 million. Under the deal's terms, the sale could occur while Capmark is in bankruptcy, but would require a bigger cash payment. Read the whole thing >

Even before the filing, the battles have begun.

Reuters: A Sumitomo Mitsui Financial Group Inc affiliate sued Credit Suisse Group AG , saying the Swiss bank failed to reimburse $21.64 million for its share of a loan to troubled commercial real estate company Capmark Financial Group Inc.

In a lawsuit filed Tuesday in Manhattan federal court, Sumitomo Mitsui Banking Corp said Credit Suisse sold it a $200 million stake in a $5.25 billion bridge loan, a form of temporary financing, made to Capmark, in 2006.

Capmark repaid $590.6 million of the bridge loan as part of a May refinancing, Sumitomo said, adding it expected Credit Suisse to reimburse $22.72 million to reflect Sumitomo's pro rata share.

- Via TBI

CBS Reveals that Swine Flu Cases Seriously Overestimated-

The U.S. Centers for Disease Control and Prevention (CDC) states on their main flu Web site http://www.cdc.gov/flu/ that flu activity is increasing in the United States, with most states reporting "widespread influenza activity."
The CDC goes on to say, and I quote:

"So far, most flu is 2009 H1N1 flu (sometimes called "swine flu")."

But wait stop the presses.
A three-month-long investigation by CBS News, released earlier this week that  included state-by-state test results, revealed some very different facts. The CBS study found that H1N1 flu cases are NOT as prevalent as feared. A CBS article even states:

"If you've been diagnosed "probable" or "presumed" 2009 H1N1 or "swine flu" in recent months, you may be surprised to know this: odds are you didn't have H1N1 flu. In fact, you probably didn't have flu at all."

Obviously CBS News and the CDC are completely contradicting each other. So who is right?
Well, CBS reports that in late July 2009 the CDC advised states to STOP testing for H1N1 flu, and they also stopped counting individual cases.
Their rationale for this, according to CBS News, was that it was a waste of resources to test for H1N1 flu because it was already confirmed as an epidemic.
So just like that virtually every person who visited their physician with flu-like symptoms since late July was assumed to have H1N1, with no testing necessary because, after all, there's an epidemic.
It's interesting to note that at the same time as the CDC decided the H1N1 epidemic warranted no further testing for cases due to its epidemic status, Finnish health authorities actually downgraded the threat of swine flu.
In late July the health ministry and the National Institute for Health and Welfare (THL) in Finland actually removed swine flu from a list of diseases considered dangerous to the public because the majority of cases recovered without medication or hospital care!
And, as the CDC continues to use fear to motivate and control Americans with their worst-case swine flu scenarios, they say nothing of the experience of those in the southern hemisphere, which just finished their flu season and found it was not as bad as expected.

CBS News Finds H1N1 Tests "Overwhelmingly Negative"

Before beginning their investigation, CBS News asked the CDC for state-by-state test results prior to their halting of testing and tracking. The CDC did not initially respond so CBS went to all 50 states directly, asking for their statistics on state lab-confirmed H1N1 prior to the halt of individual testing and counting in July.
What did they find? CBS reported:

"The results reveal a pattern that surprised a number of health care professionals we consulted. The vast majority of cases were negative for H1N1 as well as seasonal flu, despite the fact that many states were specifically testing patients deemed to be most likely to have H1N1 flu, based on symptoms and risk factors, such as travel to Mexico."

As you can see from this CBS News graphic, not only are most cases of suspected flu-like illnesses not H1N1, they're not even the flu but more likely some type of cold or upper respiratory infection!

(Image from CBS News)

Two Amazing Videos With Colleen Rowley About the 9/11 and Her Role At the FBI

Soros: Wall Street Profits Are ‘Gifts from the State’

The chorus is getting louder. Spread the word.
Soros in an interview with FT:

The big profits made by some of Wall Street’s leading banks are ‘hidden gifts’ from the state, and taxpayer resentment of such companies is ‘justified’, George Soros, the fund manager, said in an interview with the Financial Times.
‘Those earnings are not the achievement of risk-takers,’ Mr Soros said. ‘These are gifts, hidden gifts, from the government, so I don’t think that those monies should be used to pay bonuses. There’s a resentment which I think is justified.’
That would push the risk-takers who are good at taking risks out of Goldman Sachs into hedge funds, where they actually belong, because hedge funds take risks with their own capital, not with deposits and not with government guarantees.

- Via Bearish News

Motorcycle makers cutting staff and product lines as sales plunge

A year ago, it looked as if fuel-sipping motorcycles might be the option for motorists facing increasing gas prices. This year, little seems to be working for bike makers.

Sales of motorcycles plummeted 37.3% in the third quarter from the same period a year earlier, with the biggest drops coming in cruisers and sport bikes, two of the industry's biggest product lines, according to the Motorcycle Industry Council. Sales of scooters, which were gaining a year ago, also have fallen sharply.

The council, which doesn't release revenue figures of the mostly privately held member manufacturers, said overall sales of bikes fell to 136,876 in the quarter from 218,242 in the previous year's quarter.

The only bright spot was that sales were dropping at a slower pace: The number of bikes sold in the second quarter fell 53.5% from the same period a year earlier. Historically, the second and third quarters are strongest for the industry because the weather is warm throughout the country and buyers are gearing up to ride.

Industry leaders tried to put a good face on the numbers, saying the sales climate was "challenging" or "tough." But they also called it "painful."

"Every category is down, and it keeps going down," said analyst Don Brown of Irvine. "It's not the old, 'Let's get out there and sell more' that works anymore. . . . People just don't have the money."

Despite a federal stimulus that allows new bike buyers to write off the sales tax, companies are cutting staff and other expenses.

Last week, publicly held Harley-Davidson Inc. reported an 84% drop in quarterly earnings to $26.5 million. The company said it was getting out of the sport bike business, shutting down the longtime Buell line and selling its MV Agusta operation, a high-end Italian brand it bought last year.

Already this year, the Milwaukee manufacturer joined the likes of Honda, Kawasaki, Yamaha, Suzuki and Victory in laying off employees, reducing production and lowering prices to help dealers shrink swollen inventories.

Even high-end motorcycles have been hit. Confederate Motor Co., the Alabama maker of the $92,000 Wraith, expects to sell 30 bikes this year, down from 37 last year, company founder Matt Chambers said.

His affluent clients aren't as affected by the economy, he said, but with the deep recession, "it was very fashionable to not be buying a high-end luxury product like ours."

Many manufacturers have introduced programs to add value to their products.

Twice in the last year, for instance, Harley-Davidson operated a "ride free" program, which allowed buyers of new Sportsters to get credit for the original retail price of the bikes on trade-ins for more expensive models. Yamaha Motor Co. introduced its Pro Yamaha initiative, directing dealers to be more informed about products and follow up with customers to ensure that they were happy.

Ducati North America, which has seen a 30% quarterly drop in sales, began giving its customers one year of free scheduled maintenance. And Victory Motorcycles, which suffered a 56% decline in sales in the July-to-September period, began offering a five-year warranty to show "significant confidence to buyers," said Mark Blackwell, Victory's vice president.

"We haven't laid everybody off. We haven't totally stopped advertising. We've kept up the product development because we're positioning this business for when the market stabilizes and grows," he said.

Blackwell predicted that the market wouldn't begin to stabilize until at least next spring and that growth wouldn't come until later.

Harley-Davidson and Victory Motorcycles, a division of Polaris in Minnesota, hope to stem U.S. losses, in part, by growing overseas sales. Harley is pursuing emerging markets such as India and China; Victory is going after Europe, where motorcycle sales haven't fallen as much as in the U.S.

For 14 years, through 2006, U.S. motorcycle sales had increased every year. Sales started to drop in 2007, but still topped the 1-million mark.

Last year, as gasoline prices pushed toward $5 per gallon, fuel-efficient two-wheelers got a boost. Despite the worsening economy, street bike sales were down only 3.3% for the year, and scooters had their best year ever, posting a 41.5% gain from the previous year, the Motorcycle Industry Council said.

"Last year, with gas prices, we could sell scooters without a whole lot of work," said Kevin Andrews, Vespa's North American brand manager. "With the economy, we're talking about operational cost."

The cost of owning and operating a car, for instance, is $750 a month, Andrews said, citing American Automobile Assn. data. But owning and operating a scooter costs less than $300. It's a message Vespa is promoting through advertising with its dealers and on its website. Still, scooter sales are down 62% through the first three quarters, but, he said, the declines slowed in August.

"We had a period of constant increases, and I think the industry grew complacent," industry analyst Brown said. "Then the economy hit hard, and it's only gotten worse."

Confederate Motor's Chambers expects his sales to increase next year, thanks in part to a strategy most manufacturers are using: making lower-priced bikes.

Manufacturers also are coming up with ways to help buyers finance purchases.

Since April, Piaggio Group Americas, which sells Vespa scooters, has offered 7.9%, 36-month loans. And Harley-Davidson Financial Services, aided by $300 million in notes placed with Warren Buffet's Berkshire Hathaway Inc. this year and a stronger financial market recently, should support any funding needs throughout 2010, Harley spokesman Bob Klein said.


Most manufacturers, meantime, are scaling back on advertising, and long-standing enthusiast publications are finding the advertising climate "harsh," with revenue down sharply, said Larry Little, senior vice president of Cycle World magazine. "Everybody's fighting for survival up and down the food chain."

Yamaha spokesman Bob Starr said his company had to be "very focused on where, when, how and why we're advertising."

Yamaha experimented this year with low-cost viral marketing on the Internet. This summer the company produced three YouTube videos featuring some of its biggest names in racing. Each of the videos have been viewed more than 100,000 times. Whether they sold any bikes is another issue.

"Did somebody come in to a dealership and say, 'I saw this video . . . and it was so funny I'm going to buy a bike?' It's hard to say," Starr said.

Sport bike sales are down 51% so far this year.

With the riding season over for much of the country, summer 2010 can't come fast enough for the industry.

- Via LA Times

Obama declares H1N1 emergency

President Obama has declared a national emergency to deal with the "rapid increase in illness" from the H1N1 influenza virus.

"The 2009 H1N1 pandemic continues to evolve. The rates of illness continue to rise rapidly within many communities across the nation, and the potential exists for the pandemic to overburden health care resources in some localities," Obama said in a statement.

"Thus, in recognition of the continuing progression of the pandemic, and in further preparation as a nation, we are taking additional steps to facilitate our response."

The president signed the declaration late Friday and announced it Saturday.

Calling the emergency declaration "an important tool in our kit going forward," one administration official called Obama's action a "proactive measure that's not in response to any new development."
Another administration official said the move is "not tied to the current case count" and "gives the federal government more power to help states" by lifting bureaucratic requirements -- both in treating patients and moving equipment to where it's most needed.

The officials didn't want their names used because they were not authorized to speak on the record.
Obama's action allows Health and Human Services Secretary Kathleen Sebelius "to temporarily waive or modify certain requirements" to help health care facilities enact emergency plans to deal with the pandemic.

Those requirements are contained in Medicare, Medicaid and state Children's Health Insurance programs, and the Health Insurance Portability and Accountability Act privacy rule.

Since the H1N1 flu pandemic began in April, millions of people in the United States have been infected, at least 20,000 have been hospitalized and more than 1,000 have died, said Dr. Thomas Frieden, director of the Centers for Disease Control and Prevention.
Watch how to find out if you have H1N1

Frieden said that having 46 states reporting widespread flu transmission is traditionally the hallmark of the peak of flu season. To have the flu season peak at this time of the year is "extremely unusual."
The CDC said 16.1 million doses of H1N1, or swine flu, vaccine had been made by Friday -- 2 million more than two days earlier. About 11.3 million of those had been distributed throughout the United States, Frieden said.


"We are nowhere near where we thought we would be," Frieden said, acknowledging that manufacturing delays have contributed to less vaccine being available than expected. "As public health professionals, vaccination is our strongest tool. Not having enough is frustrating to all of us."

Frieden said that while the way vaccine is manufactured is "tried and true," it's not well-suited for ramping up production during a pandemic because it takes at least six months. The vaccine is produced by growing weakened virus in eggs.

- Via CNN

Dollar Weakens Past $1.50 Per Euro First Time in 14 Months

The dollar weakened to $1.50 per euro for the first time in 14 months as more evidence of a recovery in the global economy from recession increased demand for higher-yielding assets. 

 

The Canadian dollar fell against most of its major rivals this week after Bank of Canada Governor Mark Carney said Oct. 22 that intervention to weaken the currency “is always an option.” The U.S. economy expanded in the third quarter for the first time since June 2008, a Commerce Department report will show next week, according to the median estimate of 65 economists in a Bloomberg survey.

“We’ve reached these milestones,” said Andrew Chaveriat, a currency strategist at BNP Paribas Securities SA in New York. “The downtrend in the dollar is still there.” 

The dollar fell 0.7 percent this week to $1.5008 per euro, from $1.4905 on Oct. 16. The U.S. currency touched $1.50 on Oct. 21 for the first time since August 2008. The yen declined 1.3 percent to 92.06 versus the dollar, from 90.89, in its biggest decline since August. Japan’s currency depreciated 2 percent to 138.15 per euro, compared with 135.48 a week earlier. 

The pound fell 1 percent this week to 92.02 pence per euro after the U.K.’s economy unexpectedly contracted, fueling speculation that the Bank of England will increase its 175 billion-pound ($286 billion) program to buy bonds. 

The Office for National Statistics said yesterday that U.K. gross domestic product dropped for a sixth month, declining 0.4 percent in the third quarter from the second. Economists predicted a 0.2 percent increase in a Bloomberg News survey. 

Dollar Index 

The U.K. central bank began buying government and company debt with newly printed money in March as it sought to hold down borrowing costs in an attempt to haul the economy out of deepest recession since World War II. 

“The U.K. is showing it’s a laggard compared to the rest of Europe,” said Marc Chandler, global head of currency strategy in New York at Brown Brothers Harriman & Co. The Bank of England “might have to extend” asset purchasing, he said. 

 

The Dollar Index, which IntercontinentalExchange Inc. uses to track the currency against the euro, yen, Swiss franc, pound, Swedish krona and Canadian dollar, touched 74.94 on Oct. 21, the lowest level since August 2008, as optimism about the global recovery increased. Reports this week showed German business confidence rose to the highest level in 13 months and China’s economy grew at 8.9 percent in the third quarter, the fastest pace in a year. 

Refuge Demand Reversed 

All but 20 of the 138 companies in the Standard & Poor’s 500 Index that reported third-quarter results this week beat the average analyst estimate, including Apple Inc., Caterpillar Inc. and Morgan Stanley, according to data compiled by Bloomberg. 

The greenback reached a 2 1/2-year high against the euro on Oct. 28, 2008, as investors sought the safety of U.S. government debt after the Sept. 15, 2008, bankruptcy of Lehman Brothers Holdings Inc. froze credit markets. 

The dollar has plunged 18 percent from that level as efforts by global central banks restored liquidity and signs of economic recovery encouraged investors to buy higher-yielding assets at the expense of the greenback. The Federal Reserve’s benchmark interest rate is near zero, compared with 3.25 percent in Australia and 2.5 percent in New Zealand. 

A weak dollar helped push crude oil to $82 a barrel this week and copper prices to the highest level in a year. 

Central banks from Europe to South America are trying to find ways to slow the appreciation of their currencies versus the dollar as more expensive exchange rates threaten their exports.

Real’s Appreciation 

Brazil announced on Oct. 19 that it’s imposing a 2 percent tax on foreign purchases of fixed-income securities and stocks to curb the real’s 35 percent appreciation this year. The real, the best performer among major currencies in 2009, lost 0.3 percent this week to 1.7173 per dollar, its first weekly drop since August. 

Canadian central bank Governor Mark Carney said on Oct. 22 that investors lost their “focus” on the central bank’s commitment to meet a 2 percent inflation target, and that action to weaken the currency is “an option.” The Canadian currency lost 1.6 percent to C$1.0538 per dollar this week, ending a three-week rally and reducing its gain this year to 16 percent. 

In Europe, officials voiced concern that the euro’s gain versus the dollar may delay economic recovery. An exchange rate of $1.50 for the currency “is a disaster for the European economy and manufacturing sector,” said Henri Guaino, counselor to French President Nicolas Sarkozy, at a conference in Paris. 

Interest Rate Speculation 

The dollar recovered some lost ground yesterday and Treasury yields rose after Philadelphia Fed President Charles Plosser told Bloomberg Radio on Oct. 22 that his “instinct is the time for raising rates will be before many of my colleagues” think it is. 

“The market is anticipating a more hawkish posture out of the Fed and that in turn is turning into better yields, and the most direct way that’s reflected in the currency market is dollar-yen,” said Boris Schlossberg, director of currency research at online currency trader GFT Forex in New York. “There’s a potential that they could even raise rates in the first half of 2010.” 

The U.S. gross domestic product probably grew 3.2 percent in the third quarter, after contracting 0.7 percent the previous three months, according to the Bloomberg survey. The Commerce Department report is due Oct. 29. 

- Via Bloomberg

Bernanke's trillion-dollar decision

The biggest decision of the economic recovery will be made in the next six months, and Barack Obama will have almost nothing to do with it.

Forget the debate over TARP, and never mind the questions about a second stimulus. This decision is about when to pull out $1 trillion that’s propping up the U.S. banking system. And it will be Federal Reserve Chairman Ben Bernanke and his Fed colleagues who make the call.

That’s hard enough for a White House that knows its political fortunes rise and fall with the economy.

What’s worse is that Bernanke and Obama – like many presidents and Fed chairmen past – won’t necessarily have the same goals for this trillion-dollar decision.

Fed chiefs worry about inflation. Bernanke wants to take the money out quickly enough to prevent the economy from overheating and causing a jump in prices that strangles growth. But move too fast, and the economic recovery runs out of fuel.

Presidents worry about jobs. Obama probably wouldn’t mind a little overheating, say, next summer – when voters are starting to make up their minds about the 2010 congressional elections, and he hopes the economy can shake the 10-percent unemployment rate doldrums.

“Any chairman of the Fed will do what’s right for the country, not what’s right for the administration,” said Ernest Patrikis, a partner at the law firm White & Case who spent 30 years at the New York Fed. “That’s his job – that’s why he’s apolitical.”

“The exit will be so difficult,” said economist Joseph Brusuelas of Moody’s Economy.com. “Bernanke wants to engineer a recovery that does not include inflation. Obama wants a more robust recovery and like many political actors may be willing to forgo a little inflation for a little more employment.”

The White House is already worried that jobs won’t be coming back fast enough next year, Fed or no Fed.

Obama economic adviser Christina Romer warned a congressional panel Thursday that the jobs picture will remain “painfully weak” through 2010, with a seriously elevated unemployment rate for another year.

So all the White House can do is watch and wait, and hope it doesn’t pay a political price for any missteps by Fed officials they can’t control.

“It’s a dicey thing to do, and they know it,” said Sen. Richard Shelby (R-Ala.), the ranking member on the Senate Banking Committee. “They have to be careful.”

The Fed’s moves are shrouded in secrecy, their prerogative to move the levers of the economy closely guarded – so much so that there’s been a recent a rise in populist anger about this all-powerful agency that exists largely outside the democratic process.

But because the Fed is an independent agency, it’s even considered bad form for a president to talk much about it – and indeed, the White House refused to comment for this story.

Last fall, the Fed injected $ 1 trillion-plus into the nation’s banking system – at times, by providing financial institutions with cash to cover their losses as the global meltdown spread. Now Fed officials are already talking about the need to withdraw the funds injected into the economy during the darkest days of the crisis, moves that are credited with largely saving the United States from plummeting into an economic depression.

“Given the highly unusual economic and financial circumstances, judging when the time is appropriate to remove policy accommodation, and then calibrating that removal, will be challenging,” said Federal Reserve Vice Chairman Donald Kohn in a speech to the Cato Institute on Sept. 30. “Still, we need to be ready to take the necessary actions when the time comes, and we will be.”

Translation: “policy accommodation” is the cash, and “the necessary actions” are the decision to ease it out of the economy.”

And is the Fed prepared to the pull the trigger? “We will be” seems to cover it.
Already, the Fed is already showing some signs of restlessness. On Monday, the New York Fed tested its “reverse-repo” process -- one tool the Fed could use to use to pull the money out when the time comes. The test run was widely interpreted as a sign the Fed is getting ready to act – but when, nobody knows.

The Fed can also tap on the brakes at the first sign of inflation by raising interest rates, now near zero. The Fed has said it will keep the rock-bottom rates for an extended period, but it won’t be more specific when they could go up – a decision that is bound to be controversial when it comes.

Patrikis thinks the Fed will make a decision on withdrawing liquidity either during the second quarter of 2010, or after the November elections that year – but that it won’t make any dramatic moves in the run-up to Election Day.

Still, he said, it is too early to predict what the Fed might do. And Patrikis points out that Obama will have indirect input into the decision, because there are two vacancies on the Fed’s board now that Obama will fill in the coming months. The president will surely select board members whose economic judgment he trusts.


Between the two vacancies, a member who Obama appointed earlier this year and Bernanke himself, the president will likely have named four of the seven members of the Fed’s Board of Governors by the time they make the call.


But the Fed knows actions like that can have political consequences. “There are few politicians who like higher interest rates,” said one former Fed official. “And President Obama is a politician.” That said, the official continued, “I suspect they will be broadly on the same page.”

That’s because Obama, too, has a longer-term time frame in mind: 2012, when he will be running for reelection. It’s in Obama’s interest for the Fed to take inflation prevention measures now so that he doesn’t have to run a tricky reelection campaign in a high-inflation environment.

Tensions between Presidents and Fed chairmen are nothing new.

In the 1980s, Fed Chairman Paul Volcker declared war on inflation. His strategy: raising interest rates. Volcker jacked the Fed funds rate to 20 percent, which contributed to the deep early 1980s recession that caused howls of protest from the White House and incumbent Republicans on Capitol Hill. The Fed, grumbled then-Senate Majority Leader Howard Baker (R-Tenn.), should “get its boot off the neck of the economy.”

Nonetheless, Volcker’s strategy worked, and the Fed broke the back of the inflation cycle. Ironically, Volcker is a top economic adviser to Obama today.

In the 1990s, President George H.W. Bush blamed Fed Chairman Alan Greenspan for his election loss to Bill Clinton. Bush didn’t believe Greenspan was lowering interest rates fast enough to pull the nation out of a recession – which gave Clinton, with his famous “it’s the economy, stupid” campaign, an opening to trounce the elder Bush.

Mark Gertler, a professor of economics at New York University, says the lesson of history is that politicians should not interfere with the central bank. “If the Fed doesn’t act independently, the economy is endangered,” said Gertler. “It would be dangerous if the administration appeared to be interfering with the Fed.”

Financial Services Committee Chairman Barney Frank (D-Mass.) doubts they’ll be any daylight between Obama and Bernanke – who Obama just reappointed over the summer at a time when Wall Street needed a signal that there would be continuity at the Fed.

He argues that Bernanke and Obama will have the same agenda in 2010: fixing the economy.

“I think they are very much in sync,” said Frank. Asked about potential divergence between the Fed and the White House, he said, “That reflects a journalist’s hope that there will be friction. Obama and Bernanke have both argued that at some point they’re going to unwind this.”

- Via Politico

New US bill on "too big to fail" fix seen Monday

The Obama administration plans to unveil on Monday a new plan for dealing with troubled financial giants, said a senior U.S. lawmaker, who also mentioned potentially big changes for the insurance industry.


Barney Frank, chairman of the House Financial Services Committee and a chief architect of the financial regulation overhaul, declined on Friday to give details on the administration's new bill, which would give the government the power to dismantle large financial companies that get into crises.
The new draft bill is expected to take a tougher stance toward troubled financial firms than the administration's original plan, and may take out some language that would allow for temporary bailouts.

Giving the government "resolution authority" would serve as a rebuttal to the concept that some firms are too big to fail. Federal Reserve Chairman Ben Bernanke on Friday highlighted the need for this authority as well as other measures to reduce the likelihood that one firm could destabilize the financial system.



Frank also said Congress is discussing whether to create an optional federal charter for insurers.
Insurance companies are currently regulated by the states.

"If we do get into national chartering it will be in life insurance ... and maybe large commercial entities," Frank said during remarks to a banking symposium.

He said lawmakers would not likely try to federally regulate property and casualty insurers, however.

NO SUPER BANK COP

Frank's committee has cranked its efforts to overhaul financial regulation into high gear in recent days.
On Thursday it voted to approve legislation that would create a federal financial consumer watchdog. It has also passed new rules to police over-the-counter derivatives like the credit default swaps that helped fuel the financial crisis, and the full House has approved efforts to curb abusive pay practices.
While Frank's committee has made significant headway, the reform effort faces an uncertain future in the Senate and may be pushed into next year.

One idea that does seem to be gaining steam in the Senate is the move to consolidate all federal banking supervision into one super agency. Currently, four regulators share responsibility.
Christopher Dodd, chairman of the Senate Banking Committee, is a leading advocate of the consolidation, and has said he will push it forward despite regulators' reservations.
Frank, however, does not think it will pass.

"There is no remote chance of it happening," he said.

He said lawmakers will likely merge the Office of Thrift Supervision and the Office of the Comptroller of the Currency, but allow the Federal Reserve and the Federal Deposit Insurance Corp to keep their supervisory roles.

Frank also commented on the rulings of pay czar Kenneth Feinberg, who on Thursday slashed compensation for many of the top earners at seven firms that have received billions of dollars in taxpayer funds.

"I think he did a good job," he said.

On the same day that Feinberg released his rulings for the seven firms, the Federal Reserve revealed its own pay guidelines to encompass a larger chunk of financial firms.

The Fed's bank pay guidelines, while not specific, are designed to curb forms of compensation that entice employees to take large risks.

Frank said the Fed's guidelines should have a large impact and said Congress is working to finalize legislation that would clarify that the Fed does have the authority to closely police pay.
- Via Reuters

Obama's Weekly Address: Working with Small Business to Drive Recovery

The Dollar is now collapsing - Peter Schiff | Part 2

Unemployment, Poverty and the Recession

T. Boone Pickens on Iraq: 'We leave there with the Chinese getting the oil'

A leading energy developer said the United States has been excluded from Iraq's revived energy market.

T. Boone Pickens told Congress that U.S. companies were losing opportunities in the Iraqi crude oil and natural gas sectors to competitors from China and Europe. The senior executive said the United States could lose all influence in the Iraqi oil sector after the military withdrawal in 2011.

"They're opening them [oil fields] up to other companies all over the world," Pickens told the Congressional Natural Gas Caucus on Oct. 21.

"We leave there with the Chinese getting the oil," he said.

Pickens urged Congress to demand a U.S. share of Iraqi oil exploration and development contracts.
In 2009, Iraq awarded its first oil contracts to foreigners, selecting British Petroleum and China's state-owned CNPC. ExxonMobil and ConocoPhillips have been competing with Russia's LukOil to develop Iraq's West Quran oil field.

- Via World Tribune

Bank failures stack up: Now 106 for 2009

The tally of bank failures easily broke past the No. 100 milestone on Friday night, with regulators announcing the year's 106th closure.


That's more than four times the number that were closed in 2008, and the highest total since 1992, when 181 banks failed.

Earlier on Friday evening the dubious honor of the 100th failure went to Partners Bank, of Naples, Fla., which had $65.5 million in assets, according to the Federal Deposit Insurance Corp.

The 101st failure was American United Bank, of Lawrenceville, Ga., which had $111 million in assets.

The 102nd failure was another Naples, Fla., institution: Hillcrest Bank Florida, which had $83 million in assets.

The 103rd closure was Bradenton, Fla.-based Flagship National Bank, with $190 million in assets.

The 104th was Bank of Elmwood, based in Racine, Wis., which had $327.4 million in assets.

The 105th failure was Riverview Community Bank of Otsego, Minn., with $108 million in assets.

The 106th failure was First Dupage Bank in Westmont, Ill., which had $279 million in assets.

Customers of all seven banks are protected, however. The Federal Deposit Insurance Corp., which has insured bank deposits since the Great Depression, covers customer accounts up to $250,000. This is funded through premiums paid by member banks.

In fact, to reassure borrowers, FDIC chair Sheila Bair posted a video message to the agency's Web site, saying "for the insured depositor, a bank failure is a non-event."

Still, Bair cautioned that "until the healing process is complete, there will be more bank failures."
What happens to the banks. Fort Lauderdale, Fla.-based Stonegate Bank will assume control of all Partners Bank's $64.9 million in deposits. It will also take over Hillcrest Bank's $84 million in deposits. The two branches of Partners Bank and six branches of Hillcrest will reopen on Monday as branches of Stonegate.

Moultrie, Ga.-based Ameris Bank will pay the FDIC a premium of 1.02% to take control of American United's $101 million in deposits. The FDIC and Ameris Bank entered into a loss-share transaction on $92 million of American United's assets, an agreement in which Ameris will share in the losses on the assets covered.


The single branch of American United Bank will reopen on Monday as a branch of Ameris.

Lake City, Fla.-based First Federal Bank will take over all of Flagship National Bank's $175 million in deposits. The four branches of Flagship will reopen Monday as branches of First Federal.

Bank of Elmwood's $273.2 million in deposits are now controlled by Tri City National Bank, based in Oak Creek, Wis. The five branches of Bank of Elmwood will reopen on Saturday as branches of Tri City.

Stillwater, Minn.-based Central Bank will take control of Riverview Community Bank's $80 million in deposits. The FDIC and Central Bank entered into a loss-share transaction on $75 million of Riverview's assets.

First Dupage Bank's $254 million in deposits are now being handled by First Midwest Bank of Itasca, Ill. The FDIC and First Midwest Bank entered into a loss-share transaction on approximately $247 million of First Dupage Bank's assets. The sole First Dupage branch will reopn Saturday as an outpost of First Midwest.

The failure of the six banks will cost the Deposit Insurance Fund an estimated $356.6 million, according to the FDIC.

Why regional banks are failing. While larger financial institutions have received aid from the federal government, smaller banks have found themselves left adrift. Like their larger counterparts, many of these banks made risky loans to individuals and real estate developers during the boom years and are now facing large numbers of defaults as the recession drags on.

Rising unemployment has made it difficult for many individuals to keep up with expenses, and businesses are feeling the crunch of consumers' reduced spending power. As a result, regional banks are left holding loans their customers can't repay.

Problem banks list looms. The FDIC keeps a list of "problem banks," though it does not disclose the names to the general public out of fear that depositors at those institutions may prompt a "run on the bank."

In June, the agency said 416 banks were at risk of failure -- the highest level in 15 years.

It's a whopping figure, to be sure. But even as the pace of failures accelerates, 2009's numbers remain far from what happened during the savings and loan crisis two decades ago. More than 1,900 financial institutions failed from 1987-1991, peaking at 534 closures in 1989.

Federal coffers running dry. An average of 10 banks have failed per month this year, and the federal coffer is thinning under the massive strain. The fund now stands at $7.5 billion, down significantly from $45 billion a year ago.

When the FDIC factors in expected closures, the agency says the fund is in the red and will likely remain there through 2012. Bank failure costs are expected to total $100 billion over the next four years, leaving regulators strapped for cash.

Last month, the FDIC discussed how to raise quick cash to replenish the fund. The agency proposed that banks prepay their deposit insurance premiums for the next three years.

- Via CNN

Whitney Tilson: Yes, Housing Recovery Is Still "Mother Of All Head-Fakes"

AIG’s Top Swaps Managers Kept Bonuses, Feinberg Says

American International Group Inc.’s highest-paid executives in the unit blamed for pushing the insurer to the brink of collapse haven’t returned bonuses as they’d promised, according to the Obama administration.


Four of five managers in AIG’s Financial Products unit under the jurisdiction of pay master Kenneth Feinberg didn’t make good on pledges to return the retention bonuses as of August, Feinberg said in documents released yesterday. The fifth employee hadn’t made any promise, Feinberg said. The pay master rejected AIG’s proposal to pay the five executives a total of $13.2 million this year.

“The performance of AIG Financial Products has contributed significantly to the deterioration in AIG’s financial health,” Feinberg said. Compensation proposed by New York-based AIG for the staff doesn’t “adequately reflect the role of AIG Financial Products” in the decline of the insurer, he said.

AIG, which received a $182.3 billion U.S. government bailout, ignited a backlash after giving about $165 million in March to its derivatives staff. The insurer said the pay was needed to keep staff to unwind money-losing trades. President Barack Obama called the bonuses an “outrage,” and then-Chief Executive Officer Edward Liddy asked employees getting more than $100,000 to return half.

Financial Products employees have returned $19 million of the $45 million they committed to surrender from the March awards, Neil Barofsky, the chief watchdog of the U.S. financial rescue program, said in a report last week. AIG officials told Barofsky that employees were waiting to secure agreements on a pending retention award before returning the March bonuses.

Deadline Approaching 

“Employees have until the end of the year to fulfill their commitments to return a portion of their March 2009 payment,” Christina Pretto, an AIG spokeswoman, said in a telephone interview. The insurer expects the workers to honor their commitments, she said.

Feinberg, who has jurisdiction over the 25 highest-paid employees at AIG and other firms that got U.S. bailout funds, ruled that cash salaries at the insurer couldn’t exceed $500,000 a year unless “good cause” was shown. Compensation would also include stock units tied to four major AIG divisions that are paid out in three annual installments.


He said the changes resulted in a 91 percent decrease in cash pay from 2008. Thirteen employees that would have been under Feinberg’s jurisdiction have left AIG, he said.

‘Ongoing Discussions’ 

In an August report to the pay master, AIG suggested increasing the Financial Products executives’ base salaries to as much as $950,000 and awarding bonuses of as much as $2.6 million.
The executives should return the bonuses and will receive only their cash base salaries this year, Feinberg said. He is in “ongoing discussions” with AIG regarding these workers, he said.
The highest-paid workers who have left can receive their cash salaries through the date of their employment and up to $25,000 in other compensation, he said.

Feinberg approved a $10.5 million annual pay package for AIG CEO Robert Benmosche, according to a Treasury Department letter earlier this month. Benmosche will get a $7 million annual salary and as much as $3.5 million in long-term incentives.

- Via Bloomberg

LAPD's iWatch Terrorism Ad: Important Or Incredibly Creepy? (VIDEO)

Jesse Benton of Campaign For Liberty on Cavuto 10/22/2009

Love the comment at the end by Jesse

Microsoft's New Stores Look Exactly Like Apple Stores

The Housing Slide Has Officially Resumed

The last few Case-Shiller readings showed improved sequential home prices in many regions, but analysts widely expect the index to droop again, as the summer homebuying season ends.
We'll see. The next one will be crucial.
In the meantime, other research indicates that the slide is back.
Here, for example, is the FHFA, whiich today said that home prices declined 0.3% from July to August, after past months showed increases. This is an interesting chart showing home prices off the peak. (the full announcement is embedded below). Separately, Altos Research is out with data for September, showing a 0.5% decline in housing
Again, we eagerly await the new Case-Shiller data for confirmation.

- Via TBI

American Express profit falls 21%

American Express Co. said on Thursday that its third quarter net income fell 21% but it continued to clean up its balance sheet as loss provisions fell.


The company /quotes/comstock/13*!axp/quotes/nls/axp (AXP 37.10, +0.66, +1.81%) said it earned $640 million, or 53 cents a share in the third quarter, compared to $815 million, or 70 cents a share a year ago.

Total revenues net of interest expense fell 16%, to $6.02 billion from $7.16 billion a year ago. Analysts polled by FactSet Research had expected the company to earn 40 cents a share.

"At the start of the year the economy appeared to be in a freefall, the drop in cardmember spending was accelerating and loan loss rates were rising rapidly," Chief Executive Office Kenneth Chenault said in a press release. "Today, while there is still reason to be cautious about high unemployment levels, we are seeing broad-based improvements in credit quality, the trends in cardmember spending are encouraging, and there are signs that the recession may be approaching an end."

American Express shares have risen 90% in the year to date, and earlier this month Keefe, Bruyette & Woods analysts raised their outlook on the sector on what appears to be a declining deterioration in consumer credit.

"Despite continued underlying fundamental weakness in the economy in the third quarter, card stocks rose meaningfully since the end of the second quarter with issuers in our coverage up about 53%,," they said.

However the analysts also hedged, adding that, "Despite encouraging signs seen in the macro data and within the monthly credit quality trends of card issuers, we still don't have a concrete opinion on whether or not credit quality has peaked given that unemployment levels remain elevated," the analysts wrote.

- Via Market Watch

10/20/2009 Ron Paul talks Economics on CNN American Morning

California Investigating Voting Machine’s Undetectable Vote-Delete Function

LOS ANGELES — California is conducting a months-long investigation in the state’s electronic voting systems after reports of serious flaws — including registered users’ ability to delete votes without even leaving an electronic trail.

The investigation is examining how the system’s internal audit logs actually work and whether audit records can be easily altered or deleted, according to Secretary of State Debra Bowen.

The investigation stems from a serious problem found in January with voting systems made by Premier Election Solutions (formerly Diebold Election Systems). That Threat Level story showed that the tabulation system used in all of the company’s touch-screen and optical scan machines fails to record crucial events, including the act of someone deleting votes from the system on election day. The logs also failed to record who performed an action on the system and listed some events with the wrong date and timestamps.

The investigation is just the latest critical look at e-voting machines, whose proprietary inner workings have lead conspiracy theorists, voting rights activists and computer scientists alike to question the integrity of the country’s voting processes. The company’s software is used to count votes in more than 1,400 election jurisdictions in 31 states, including Maryland and Georgia use Premier/Diebold voting systems exclusively.

Bowen, appearing at an event Wednesday evening to discuss an open source voting project in development, told Threat Level that the state contracted with David Wagner, a computer scientist with the University of California at Berkeley, to investigate fully what the logs on the Premier/Diebold system, as well as every other voting system used in the state, do and don’t record.

Fed to Propose Bank-Pay Guidelines, Review 28 Firms

The Federal Reserve proposed new guidelines on pay practices at banks and said it will launch a review of the 28 largest firms to ensure compensation packages don’t create incentives for the kinds of risky investments blamed for the financial crisis.

“Compensation practices at some banking organizations have led to misaligned incentives and excessive risk-taking, contributing to bank losses and financial instability,” Fed Chairman Ben S. Bernanke said today in a statement. “The Federal Reserve is working to ensure that compensation packages appropriately tie rewards to longer-term performance.”

The central bank’s action parallels efforts by U.S. lawmakers, the administration of President Barack Obama and world leaders to overhaul incentives to reduce threats to the financial system. Investments in mortgage-backed securities and other complex instruments have led to more than $1.6 trillion in credit losses and writedowns at firms from Zurich-based UBS AG to New York-based Citigroup Inc., triggering the worst economic crisis since the 1930s.

Deserted shopping mall bleak symbol of Fed bailout

A $29 billion trail from the Federal Reserve's bailout of Wall Street investment bank Bear Stearns ends in a partially deserted shopping center on a bleak spot on the south side of Oklahoma City.

The Fed now owns the Crossroads Mall, a sprawling shopping complex at the junction of Interstate highways 244 and 35, complete with an oil well pumping crude in the parking lot -- except the Fed does not own the mineral rights.

The Fed finds itself in the unusual situation of being an Oklahoma City landlord after it lent JPMorgan Chase $29 billion to buy Bear Stearns last year.

That money was secured by a portfolio of Bear assets. Crossroads Mall is the only bricks and mortar acquired through bailout. The remaining billions are tied up in invisible securities spread across hundreds, if not thousands, of properties.

It is hard to be precise because the Fed has not published specifics on what it now owns. The only reason that Crossroads Mall has surfaced is that it went into foreclosure in April.

US Treasury sets record $123 bln bond auction week

The U.S. government announced a record volume of $123 billion worth of bond auctions next week, which came at the high end of some analysts' expectations but caused no major market ructions.


The figure beats the previous record of $115 set in July and includes two-, five- and seven-year notes in tandem with an offering of previously issued five-year Treasury Inflation Protected Securities.
Upside surprises came in a slightly larger-than-expected seven-year note sale of $31 billion and a chunkier TIPS offering of $7 billion.

The government will also sell $44 billion of two-year notes, and $41 billion worth of five-year notes.
Treasury debt prices took the announcement in stride, remaining steady at lower levels on the day US10YT=RR.

Investors have kept a close eye on U.S. debt auctions this year in light of the government's burgeoning budget deficit. During a brief period in May some questioned the longevity of the United States' prized AAA rating.

The U.S. budget deficit hit a record $1.4 trillion in the fiscal year that ended on Sept. 30 as the deep recession and a series of bank rescues cut a gaping hole in public finances.

In terms of the economy, the budgetary shortfall amounted to 10 percent of total U.S. economic output, the most for any budget shortfall since World War Two, and the White House has forecast deficits of more than $1 trillion through fiscal 2011.

- Via Reuters

Leading indicators signal growth, but jobs scarce

A private forecast of economic activity rose for the sixth straight month in September, a sign the economy may keep growing early next year despite rising unemployment.

The number of new claims for jobless benefits jumped more than expected last week. Claims had fallen in five out of the previous six weeks, and most economists expect that trend to continue but at a slow pace, with employers still reluctant to hire.

The Conference Board said Thursday that its index of leading economic indicators rose 1 percent last month after a 0.4 percent gain in August, beating economists' expectations.

The group said the indicators' 5.7 growth rate in the six months through September was the strongest since 1983, but joblessness is weighing on the rebound. Dips in manufacturing hours worked and building permits, a gauge of future construction, were the only two measures out of 10 that weighed down the index. It is meant to project economic activity in the next three to six months.

The six-month rate is consistent with annual economic growth of about 8 percent, said Paul Dales, U.S. economist at Capital Economics. It's unlikely the rebound will be that strong, however, as the index may be "distorted" by the Federal Reserve's rock-bottom interest rates and market liquidity measures, he said.

The government will report on third-quarter economic growth next week. Many economists think gross domestic product -- the value of all goods and services produced in the United States-- grew about 3 percent after falling for a record four straight quarters. But many wonder if that pace can continue in the current quarter and next year as unemployment rises and consumers remain hesitant to spend.

Lack of job growth is a major problem. The Labor Department said the number of newly laid-off workers filing claims for jobless benefits rose to a seasonally adjusted 531,000 last week, from an upwardly revised 520,000 the previous week. Wall Street economists had expected only a slight increase, according to Thomson Reuters.

Economists consider jobless claims a gauge of layoffs and a sign of companies' willingness to hire.
The four-week average of claims, which smooths out fluctuations, fell to its lowest level since mid-January. But claims remain well above the 325,000 that economists say is consistent with a healthy economy.


The report is "slightly disappointing," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients. "But it does not change the core story, which is that ... a clear downward trend in claims has emerged" over the past two months.

On Wall Street, stocks zigzagged as investors sorted through the disappointing jobs data and uneven earnings reports. The Dow Jones industrial average added about 75 points in afternoon trading, while broader indices were mixed.

A rebound in the housing sector and manufacturing is helping drive economic activity higher, aided by government stimulus programs and demand from overseas.

Caterpillar was among companies signaling that emerging markets like China and India would be leading the global recovery. The heavy equipment maker said Asia is its best-performing region. Drugmaker Pfizer and handbag maker Coach also said sales are picking up in Asia, and they're rushing to add salespeople and open new stores.

Still, manufacturing won't add jobs in the U.S. Hiring by the nation's restaurants, shops, banks and other service providers is needed for that to happen. Consumer spending powers those businesses, and as long as unemployment is rising and credit tight, shoppers likely will remain wary of big spending.
Profits and sales were down for another quarter at UPS. The world's largest package delivery company said this week that customers are shipping fewer and lighter packages. In some cases, they're choosing slower and cheaper shipping options.

The government also said Thursday that people continuing to claim unemployment benefits dropped to 5.9 million for the week ended Oct. 10, the fifth straight weekly drop.

Recipients filing for aid for the government's extended benefit programs dropped about 50,000, to 8.8 million in the week ended Oct. 3. The federal government is funding up to 53 extra weeks of benefits on top of the 26 weeks states usually provide. But economists say that decline is likely due to jobless benefits running out, rather than people finding jobs.

- Via AP

Sid the Science Kid Gets a Flu Shot

This crap is right off the HHS youtube channel. Is this really needed.

The Dollar is now collapsing - Peter Schiff

U.S. preparing to attack Iran?

Dollar manipulation

Is it me or is there Gov manipulation of the dollar going on this week. We are seeing the dollar hit new lows and then bam its shooting up. Like waves in the sea. Can you honestly say that there are people out there who are reading the same news stories as I post here and are saying to themselves "hey you know what, its a good time to buy the dollar. its a great investment." I dont buy that. I know some retards out there mind believe that the dollar is going to go back up and might be buying stock but not at the numbers that were seeing. I'm going to go out on a limb and say that the FED is buying dollars to boost up against the huge wave of people trying to sell the dollar. we have heard the them talking about keeping a strong dollar and I would be this Macbook Pro i'm typing on that thats exactly whats going on right now. I would say that they are trying to subdue or prolong this self off of the dollar. But as we have seen each day this week. with the up swings we see very hard andstrong down swings that destroy what small rally was created by the Fed. What are your thoughts on this i'd love to hear em.

Sorry for the grammar errors its late and i have a headache and just dont care to fix them.

Chinese official urges buying of gold, U.S. land: report

A top Communist Party research chief said Thursday that China should buy gold and U.S. real estate rather than Treasurys, according to a Reuters report.


Li Lianzhong, who is head of economics at the party's policy research office, said the U.S. dollar is poised for a fall, making gold and land better investments for China's $1.95 trillion in foreign exchange reserves, the report said.

It quoted Li as saying Beijing should also focus on buying up energy and natural resources.

His remarks followed just hours after China Petroleum & Chemical Corp. -- better known as Sinopec (NYSE:SNP) (SEHK:HK:386) -- said it had reached a deal to buy oil and gas group Addax Petroleum Corp. for $7.2 billion. See full story on Sinopec acquisition.

- Via Market Watch 

Earthquake-type of BAAAMM!!—Scarborough EXPOSES the Reason Why Obama is Attacking Fox News

Fall of The Republic Full video

More videos coming. I'm dropping them on here as Alex Jones loads them to his youtube channel.

CIT Group Says Its Failure Risks Demise of Customers

CIT Group Inc., the century-old lender that hasn’t been able to persuade the government to back its debt sales, says its demise would put 760 manufacturing clients at risk of failure and “precipitate a crisis” for as many as 300,000 retailers.

A collapse would ripple across the “small and medium-sized businesses who rely on CIT to operate -- to pay their vendors, ship goods to their customers and make their payroll,” the New York-based lender said in internal documents obtained by Bloomberg News that make the case for its importance to the U.S. economy. CIT spokesman Curt Ritter declined to comment on the documents.

CIT executives spoke with regulators during the past two days, according to a person familiar with the talks, after its bonds and shares tumbled on concern that the Federal Deposit Insurance Corp. won’t allow the lender into its bond-guarantee program created last year to unfreeze debt markets. CIT may default as soon as April, when a $2.1 billion credit line matures, according to Fitch Ratings.

“A CIT default would create liquidity issues for the corporate sector,” Ed Grebeck, chief executive officer of debt consulting firm Tempus Advisors in Stamford, Connecticut. “If CIT isn’t doing trade finance and lending, its customers will look to other banks for replacement and from what I’ve seen, they aren’t willing to step up.”

Bonds, Shares Fall 

A failure of CIT, run by Chief Executive Officer Jeffrey Peek, would be the biggest bank collapse since regulators seized Washington Mutual Inc. in September. CIT reported $75.7 billion in assets and $68.2 billion in liabilities, including $3 billion in deposits, at the end of the first quarter.

CIT’s $656 million of 5.125 percent notes due in 2014 fell 4.5 cents on the dollar to 53 cents as of 9:21 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields 20 percent.

The stock declined 36 cents, or 23.5 percent, to $1.17 as of 9:36 a.m. in New York Stock Exchange composite trading. It dropped 46 cents, or 23 percent, last week.

The company, which reported more than $3 billion of losses in the past eight quarters, says it’s hired Skadden, Arps, Slate, Meagher & Flom LLP as an adviser.

New York-based Skadden is known for its work in mergers and acquisitions and bankruptcies. The firm represented BHP Billiton Ltd., the world’s largest mining company, in its $150 billion proposed acquisition of Rio Tinto, and advised Circuit City Stores Inc. in its bankruptcy.

Maturing Debt 

“Skadden is one of the principal law firms representing CIT,” Ritter said in an e-mail on July 11. “They represent the firm on a wide variety of corporate matters. CIT will not comment on any specific aspect of their engagement.”

Jay Goffman, co-head of Skadden’s global corporate restructuring group, declined to comment on the firm’s work for CIT.

CIT faces $10 billion of maturing debt through 2010 and hasn’t sold corporate bonds in more than a year, according to data compiled by Bloomberg.


Credit-default swaps on CIT rose 2 percentage points to 39.5 percent upfront, according to broker Phoenix Partners Group. That’s in addition to 5 percent a year, meaning it would cost $3.95 million initially and $500,000 annually to protect $10 million of CIT debt for five years. The upfront cost reached the highest since Oct. 17, when it climbed to a record 41.5 percent, according to CMA DataVision prices.

Bondholder Protection 

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company’s ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline, the opposite.

CIT, which says it was the first to offer credit to help consumers nationwide buy Studebaker cars, funds about 1 million businesses from Dunkin’ Brands Inc. in Canton, Massachusetts, to Eddie Bauer Holdings Inc., the bankrupt clothing chain in Bellevue, Washington. CIT says it’s the third-largest U.S. railcar-leasing firm and the world’s third-biggest aircraft financier.

CIT became a bank in December to qualify for a government bailout and received $2.33 billion in funds from the U.S. Treasury.

Risk to Taxpayers 

The FDIC is concerned that standing behind CIT debt would put taxpayer money at risk because the company’s credit quality is worsening, people familiar with the regulator’s thinking, who declined to be identified because the talks are private, said last week. Since Nov. 25 the FDIC has backed $274 billion in bond sales under its Temporary Liquidity Guarantee Program, designed to give creditworthy borrowers access to funds after debt markets seized up following the failure of Lehman Brothers Holdings Inc.

The federal agency, run by Chairman Sheila Bair, is in discussions with CIT about how the lender can strengthen its financial position to get approval, including raising capital, said one of the people. CIT’s measures to improve its credit quality, such as by transferring assets to its bank, have been insufficient, the person said.

‘Active Discussions’ 

CIT is in “active discussions” with regulators on a “series of measures to improve the company’s near-term liquidity position,” it said in a statement distributed by Business Wire today. The talks include CIT’s application for FDIC funds and measures such as the transfer of assets to CIT Bank, it said.

CIT’s internal report outlines the potential effects of a failure on customers to which it’s committed $3.9 billion of bank lines.

A “substantial portion” of clients “would not have easy access to additional revolving credit without CIT,” according to the documents. “This could lead to business failure for those who lack additional liquidity.”

BlueTarp Financial is “one of many small businesses that rely on CIT, and without a player like them there is no one else to turn to,” said Bond Isaacson, CEO of the Charlotte, North Carolina-based provider of trade credit to building contractors.

“We are treading on thin ice if CIT is allowed to fail and with them will go a lot of small businesses,” Isaacson said.

The company has already cut back on arranging new loans and its failure wouldn’t cause widespread problems, said Kathleen Shanley, a Chicago-based bond analyst for Gimme Credit LLC.

“Absent a change of heart on the part of the FDIC, it is difficult to see how CIT can survive,” Shanley said. “Fixed income investors have lost confidence in the viability of CIT’s business model, which will make it extremely difficult for the company to fund its upcoming debt maturities and ongoing operations.”

- Via Bloomberg

Goldman Adviser Resurrects Trickle-Down

We have to tolerate the [pay] inequality as a way to achieve greater prosperity and opportunity for all -Brian Griffiths, Goldman Sachs International Adviser
 
Griffiths made the remarks while arguing that outsized banker pay will boost the economy, via increased spending. Bloomberg is the source, and unfortunately they didn’t provide too much more info. Lord Griffiths made the statement during a panel titled “What is the price of morality in the marketplace?”.

“Smartest Guys in the Room” Defense Not Working Anymore

Looks like now everyone realizes Goldman is getting tremendous benefits from the Feds, they’ve been forced to switch-up their defense tactics. They can’t use the old “hey, we’re awesome at what we do” defense anymore.

But I don’t think the trickle-down argument is fly either. Too much populist outrage for the “We pay taxes on our Porsches, and that helps everybody” case to work.

Alms For the Poor

The charitable-giving angle isn’t working either. Goldman recently pledged $200m to charity in an attempt to generate some good PR. Doesn’t look like it was successful so far, and it may even be fueling the Goldman-haters’ fire. But Mr. Griffiths mentioned the “alms for the poor” message too:

To whom much is given much is expected. There is a sense that if you make money you are expected to give.

There is a sense?! These guys are ripping off the world, and there’s only a sense they should give something back? How about everything? All bonuses from the last 5 years clawed back? That would be a good starting point for negotiations.

When a bank has access to the discount window, has raised $50b in taxpayer-guaranteed debt, and benefits in other ways from the Feds’ actions, it’s ridiculous that they’re handing out record bonuses. They shouldn’t be getting bonuses at all. The balls of a guy like Griffith are mind-boggling.

- Via Bearish News